8/23/2012

RBS may face sanctions inquiry after internal review

Royal Bank of Scotland (RBS) is understood to be facing investigations into whether it has broken economic sanctions against Iran.

The bank would not comment, but confirmed that it had voluntarily given information on its procedures to UK and US authorities.

It stated that it had approached officials after an internal inquiry.

Standard Chartered and HSBC have been accused of breaking rules designed to prevent transactions with Iran.

The US Department of Justice and the UK's Financial Services Authority both refused to comment on whether they were investigating RBS.

Internal review

RBS referred to recent financial reports in which it said that it had "initiated discussions" with regulators "to discuss its historical compliance with applicable laws and regulations, including US economic sanctions regulations".

RBS said that it voluntarily gave information to regulators about the potential infringements when an internal review uncovered them.

That review was started by Stephen Hester, RBS chief executive, when he joined the business.

"The Group may become subject to formal and informal supervisory actions and may be required by its US banking supervisors to take further actions and implement additional remedial measures with respect to these and additional matters," RBS said when it published its half-year results earlier this month.

Earlier this month, Standard Chartered agreed to pay a $340m (£217m) settlement with New York regulators after it was accused of hiding $250bn of transactions with Iran.

The New York State Department of Financial Services says Standard Chartered spent the best part of 10 years, from 2001 to 2010, hiding billions of Iranian financial deals.

The dollar transactions originated and terminated in European banks in the UK and the Middle East, and were cleared through its New York branch, the complaint said.

Press reports earlier this week suggested that Germany's Deutsche Bank is also being investigated by the US Treasury's Office of Foreign Assets Control, the Federal Reserve, the US Justice Department and Manhattan's district attorney's office for alleged infringements of US-Iran economic sanctions.

Deutsche Bank refused to comment on the reports.

Sanctions regime

Iran has been subject to US economic sanctions since 1979. The current regime operates under the US Treasury Department's Office of Foreign Assets Control.

They were toughened in 1997 by then-President Bill Clinton, who signed an order for sanctions that prohibited "virtually all trade and investment activities with Iran by US persons, wherever located".

Under US criminal law, violations of the Iranian Transactions Regulations may result in a fine up to $1m and/or jail for up to 20 years.

Under the sanctions regime, until 2008, banks in the US in some circumstances were allowed to undertake so-called U-turn transactions with Iranian financial institutions.

Those U-turn transactions move money for Iranian clients among non-Iranian foreign banks, such as those in the UK and the Middle East. They are cleared through the US, but neither start nor end in Iran.

To ascertain whether these transactions are permitted, US clearing banks use the wire-transfer messages they get from banks, using the SWIFT payments system.

If the banks do not have enough information to make the call, they are supposed to freeze the assets.

The allegations involving Standard Chartered and HSBC, both centred on U-turn transactions.

Standard Chartered was accused of stripping the messages of data that showed the clients were Iranian, replacing it with false entries.

The UK-based bank said that not only did "99.9% of the transactions" relating to Iran comply with U-turn regulations, but that the total value of transactions that did not comply was under $14m - converse to the $250bn worth of Iran transactions US regulators said it had hid.

In July, a US Senate Committee found that HSBC carried out 25,000 transactions totalling $19bn that were connected to Iran between 2001-07, which it suggested was evidence that the bank may have broken economic sanctions.